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EC reduces eurozone growth forecast – Industry roundup: 12 September

EU Commission cuts eurozone growth forecast as Germany enters recession

The European Commission has reduced its eurozone economic growth forecasts for 2023 and 2024, with the single currency area weighed down by Germany's poor performance.

The European Union (EU’s) executive arm now expects the German economy to contract by 0.4% this year, against its previous forecast of 0.2% growth.

In its report, the commission cited manufacturing weakness and said Germany was hit particularly hard by energy price shocks linked to the war in Ukraine. The International Monetary Fund (IMF) had already predicted Germany would be the only major advanced economy to shrink in 2023.

The European Central Bank’s (ECB) efforts to tame inflation via successive interest rate-hikes also contributed to the slowdown in the eurozone, the report added. The ECB meets this Thursday to decide whether to raise borrowing costs again or pause its campaign.

While the growth prospects of France and Spain have improved modestly since the spring, the commission said the eurozone economy overall was now expected to expand by 0.8% in 2023, down from 1.1% previously. Growth in 2024 has been revised down from 1.6% to 1.3%.

Paolo Gentiloni, the EU commissioner for economy, said: “The EU avoided a recession last winter – no mean feat given the magnitude of the shocks that we have faced. This resilience, most evident in the strength of the labour market, is a testimony to the effectiveness of our common policy response.

“However, the multiple headwinds facing our economies this year have led to a weaker growth momentum than we projected in the spring. Inflation is declining, but at differing speeds across the EU. And Russia’s brutal war against Ukraine continues to cause not only human suffering but economic disruption.”

Inflation in the eurozone is expected to average 5.6% in 2023, compared with 5.8% in the spring. In the broader EU, inflation is forecast to be 6.5% rather than 6.7%.

Gentiloni said “prudent, investment-friendly” tax and spending policies should work in tandem with the efforts of central banks to tame inflation.

The commission also said the sharp slowdown in the provision of bank credit showed higher interest rates were working their way through the economy. Survey indicators pointed to slowing economic activity in the summer and the months ahead, with continued weakness in industry and fading momentum in services, despite a strong tourism season in many parts of Europe.


JPMorgan chief attacks draft US bank capital rules

JPMorgan Chase CEO Jamie Dimon has repeated his opposition to the US Federal Reserve’s proposed capital regulations, warning such measures could reduce lending and economic growth.“I wouldn't be a big buyer of a bank,” the head of the largest lender quipped during a financial conference.

The proposed changes would apply to banks with more than US$100 billion in assets, requiring JPMorgan to hold 30% more in capital than a European lender, Dimon said. To comply, the bank, which bought troubled lender First Republic in March this year, is starting to repurchase stock at lower levels. “Is that what they want? Is that good, long term?” Dimon asked.

He sees growth as threatened by more than just stricter capital rules and warned that current economic resilience should not warrant expectations for a years-long rebound. “To say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake,” Dimon added.

While consistent disinflation and a strong labour market have encouraged Wall Street’s hopes for a soft-economic landing scenario for the US, Dimon has been consistently bearish and named a slew of headwinds that could still capsize the economy's trajectory.

Among key concerns were central bank efforts to limit economic liquidity, especially the Fed’s quantitative tightening campaign, and an increasing reliance on fiscal deficits. “I think there's a false sense of security that those two things will end up being OK. I don't know,” Dimon said, during the conference's Q&A.

He also cited the Inflation Reduction Act (IRA), global remilitarisation, and greenification of the economy as factors whose influence is hard to gauge, given few historic comparisons. Top of mind is also the war in Ukraine, which has already skewed everything from trade to investing.

“It just puts me on a heightened edge of caution,” he said, adding: “These things are tectonic differences from what you've experienced since 1945.”


India's central bank aims to boost digital rupee adoption

The Reserve Bank of India (RBI) is actively collaborating with financial institutions to introduce innovative features aimed at popularising the central bank digital currency (CBDC), Reuters reports.

The RBI has set an ambitious target of one million daily transactions by the end of 2023, but currently retail CBDC transactions in India average no more than around 18,000 daily.

Among the proposed features, the central bank is also exploring the capability to conduct digital rupee transactions when a customer is offline and also linking the e-rupee to India’s widely used Unified Payments Interface (UPI). 

UPI is a real-time payments system enabling seamless money transfers across multiple banks without the need to disclose bank account details.

The central bank has been urging banks to enable e-rupee interoperability with UPI through QR codes, as confirmed by two of the bankers involved in the discussions. This interoperability will facilitate payments through the already prevalent UPI QR codes. India’s largest public sector bank, the State Bank of India (SBI), has already integrated the digital rupee with UPI.  

Discussions between the RBI and banks also encompass ways to allow the use of e-rupee in situations where both the customer and the merchant are offline. While technology proposals are being examined by the RBI, no approvals have been granted as of yet, according to a source.

Reuters reported that top private lender HDFC Bank is collaborating with technology firm IDEMIA to develop a version of offline CBDC transactions designed for feature phones, as disclosed by insiders aware of the plans. However, HDFC has not confirmed the same yet. 

During the G20 summit at the weekend, India showcased the digital rupee to foreign delegates by allowing them to exchange foreign currency for India’s CBDC.


Japan hints at end to negative rates

Bank of Japan (BOJ) Governor  Kazuo Ueda said the central bank could end its negative interest rate policy when achievement of its 2% inflation target is in sight, national daily Yomiuri Shimbun reported at the weekend, signalling possible interest rate hikes.

The central bank could have enough data by year-end to determine whether it can end negative rates, Ueda told the paper in an interview. “Once we're convinced Japan will see sustained rises in inflation accompanied by wage growth, there are various options we can take,” Ueda added. “If we judge that Japan can achieve its inflation target even after ending negative rates, we'll do so.”

The BOJ currently guides short-term interest rates at minus 0.1% under its negative rate policy. It also caps the 10-year government bond yield around zero as part of efforts to reflate the economy and sustainably achieve its target.

With inflation exceeding its 2% target for more than a year, markets have been rife with speculation the BOJ will soon start raising interest rates. But Ueda has stressed the need to maintain its ultraloose policy until the BOJ is convinced inflation will sustainably stay around 2% backed by solid demand and wage growth.

Ueda repeated the stance in the interview, saying the BOJ will “patiently” maintain the ultraloose policy for the time being. “While Japan is showing budding positive signs, achievement of our target isn't in sight yet,” he said.

The BOJ will not ignore the risk of inflation exceeding expectations, Ueda said, adding wage rises are beginning to push up service prices. The key is whether wages will keep rising next year. “We can't rule out the possibility we’ll get enough information and data by year-end," he told the paper on the timing for ending negative rates.

Under a negative rate policy, banks and other financial institutions are required to pay interest for parking excess cash — beyond what authorities say they must keep on hand for safety reasons — with the central bank.


HSBC calls a halt to transactions in Russia

Following Citi’s recent announcement that it is shutting its ATM network across Russia, HSBC is to halt commercial payments by business customers to and from Russia and Belarus, as lenders tighten restrictions beyond sanctions imposed after the invasion of Ukraine.

The UK’s biggest banking group said the volume of sanctions and trade restrictions globally imposed on Russia and its close backer Belarus had made it “increasingly challenging” to operate.

“We have therefore reached the decision to restrict commercial payments by our corporate entity customers to or from Russia and Belarus through HSBC,” a spokesperson said. Business customers have been informed the bank no longer intends to process the payments from this month.

HSBC was criticised by some staff in March when it was reported that it was editing its own analysts’ notes, removing references to the “war” in Ukraine and softening them to “conflict”. Moscow insists its invasion is not a war but a special military operation.

The West blocked several Russian banks’ access to the international Swift payments system soon after Moscow invaded Ukraine in February 2022, with Sberbank and VTB forced to shutter operations across much of Europe.

Western governments also froze about US$300 billion of the Russian central bank’s reserves.

Not all ties with Russia have been cut and trade, albeit reduced, continues. Some European banks, including the Italian bank UniCredit and Austria’s Raiffeisen Bank International, have major businesses there.


Malaysia’s first digital bank is launched

GXBank has become Malaysia’s first digital bank to receive approval to begin operations from the Minister of Finance and the country’s central bank Bank Negara (BNM). GXBank successfully completed an operational readiness review ahead of schedule and was approved to begin operations effective 1 September 2023.

The new bank, which has more than 95% Malaysian employees from both the technology and finance sectors, will be led by Pei Si Lai, who said: “At GXBank, we are driven by our shared purpose and passion to bring positive transformation to the financial industry, starting with solutions to address the financial struggles of Malaysians and businesses.”

BNM awarded five digital banking licenses to successful applicants in April 2022. Of the five, three are majority-owned by Malaysians and it was stipulated that each would undergo a period of operational readiness to be validated by BNM through an audit before they could begin operations. The process was expected to take between 12 to 24 months, with a deadline set in April 2024.

The successful applicants included a consortium led by GXS Bank Pte Ltd. and Kuok Brothers Sdn Bhd. GXS Bank is a digital bank joint venture between Grab and Singapore Telecommunications (Singtel). The Grab-led digital bank, called GX Bank Berhad (GXBank) was able to successfully complete its operational readiness in time for a 1 September launch.


Ireland’s fintechs call for regulatory streamlining

Irish financial technology (fintech) firms have called for regulatory processes to be streamlined to trim costs for firms and for Ireland’s government to explore ways to support staffing in the sector in a difficult market.

Financial Services Ireland (FSI), the lobbying group that represents the sector in Ireland, said in a report that the coalition government should also look to other countries such as France that have set up dedicated fintech hubs.

Conducted on behalf of FSI, an Amárach survey of fintech companies revealed that talent shortages, regulatory hurdles and funding are considered the three biggest obstacles to growth among firms.

More general issues such as the availability of housing and the cost of doing business were also “prominent among the challenges that were identified, as was the deterioration in the general fundraising environment caused by rising interest rate”, FSI said in its Ireland’s Fintech Future report.

However, the report also indicates that the sector is primed for expansion over the next three years with 70% of respondents indicating that they plan to increase their headcount, while 86% of start-ups and 72% of respondents overall said they also expect turnover to increase as technological solutions become increasingly integrated into mainstream financial services.

With private-sector funding for growth companies, particularly in fintech, drying up as a consequence of rising interest rates, FSI director Patricia Callan said there was scope for the Government to fill the gap.

The Republic’s regulatory environment is “very well regarded” internationally, Ms Callan said, but processes could be streamlined in order to reduce costs for businesses and avoid “without losing any credibility in the process”.

Praising the Central Bank for “beefing up” its Innovation Hub – a platform for companies to put queries to the regulator about potentially disruptive technologies – she said the mostly costly outcome for companies in their engagement with regulators is “the slow no”.


Philippines SEC beefs up sustainability reporting guidelines

The Philippines’ Securities and Exchange Commission (SEC) is drafting revised guidelines for sustainability reporting by publicly listed companies (PLCs).

“The revised guidelines seek to further enhance the quality of sustainability reporting and ensure consistency of non-financial information submitted by PLCs,” the SEC said. The revised guidelines will take into consideration global sustainability standards including the IFRS S1 and S2 standards finalised in June.

The new guidelines will aim to ensure consistency and uniformity in the sustainability measures reported by PLCs, as well as enhance the quality of the information disclosed.

The revised guidelines will take into consideration global sustainability standards such as IFRS S1 and IFRS S2 among others which have been endorsed by the International Organization of Securities Commissions earlier his year.

The SEC has seen a steady increase in the submission of sustainability reports by PLCs since it issued the first set of guidelines in 2019. In 2021, the compliance rate stood at 95%.

Prior to the release of the guidelines in 2017, only around 22% of PLCs disclosed their sustainability reports to the SEC.


Perfios raises US$229 million for real-time credit underwriting solution

Perfios, an Indian fintech that provides real-time credit underwriting solutions to banks and non-banking financial institutions, has raised US$229 million in a new funding round as it looks widen its expansion in North America and Europe.

The 15-year-old startup’s Series D funding was led by Indian private equity firm Kedaara Capital. The new funding included some secondary sales, but the startup didn’t specify the amount. The Bengaluru-headquartered firm, which also counts Warburg Pincus and Bessemer Venture Partners among its backers, has raised US$384 million in primary and secondary transactions to date, according to reports.

The further participation from private equity firms suggests that Perfios, which operates in 18 geographies, is at least beginning to prepare for its initial public offering (IPO). PEs typically get involved with startups, at least those in the Asia region, two to three years before their IPO. Perfios has now confirmed that it plams to go public in 18 to 24 months.

Perfios operates a number of services that allow businesses to automate loan decisions, offer insights into a customer’s financial worthiness, and aggregate data for APIs. It offers both model and loan insights, uses AI and ML techniques, and is tailored for various financial products.

The platform adapts and learns on its own and can forecast trends in new markets or areas. With its digital scoring, Perfios AI gives overall scores, detailed breakdowns, and features to evaluate credit risk efficiently, analysts said in a recent report.


iBanFirst transacts over €2 billion in cross-border payments

iBanFirst, which provides foreign exchange and international payments for businesses, has transacted over €2 billion in cross-border payments for Central and Eastern Europe (CEE) based companies within two years of entering the regional market.

The Brussels, Belgium-headquartered company, which has 13 operational offices in 10 European countries, said that it quickly established itself as a trusted partner for SMEs in a region characterised by a high level of digitalisation and early adoption of fintech services. The rise of fintechs offering, especially in international payments over the past seven years, has translated into substantial savings for regional-based SMEs, exceeding €1 billion annually.

The international fintech opened its first offices in the CEE in 2021 and has local offices in Bucharest, Sofia, and Budapest. High trading volumes have been generated by the mix of currencies and volatility regime present in the region, as well as by the digital transformation of regional SMEs, early adopters of fintech services.

The growth has also accelerated in the context of the geopolitical and economic crisis, which prompted trade companies to seek risk management services to mitigate their exposure to currency fluctuations.

The European alternative for international payment processes more than €1.4 billion euros each month, has onboarded more than 1,000 business clients onto its platform, empowering them to expand their businesses across borders through fast and cost-effective all-in-one digital financial services. On average, more than 50 SMEs from the CEE region open an account on the iBanFirst platform each month.

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